Meaning of public purpose

LUTZ v ARANETAGR No. L-7859 (1955)increase in tax on the manufacture of sugar on a graduated basis / not pure exercise of taxing power / levied with a regulatory purpose / rehab and stabilize threatened sugar industry

FACTS: Plaintiff Lutz seeks to recover from the Collector of Internal Revenue taxes paid by

the estate, alleging that such tax is unconstitutional and void, being levied for the aid and support of the sugar industry exclusively, which in plaintiff's opinion is not a public purpose for which a tax may be constitutionally levied.

CFI dismissed the action, hence this case.

ISSUE:Whether the protection and promotion aimed by the imposed tax on the sugar industry is a matter of public concern

HELD:Yes.

Its promotion, protection and advancement, therefore redounds greatly to the general welfare. As the protection and promotion of the sugar industry is a matter of public concern the Legislature may determine within reasonable bounds what is necessary for its protection and expedient for its promotion. Here, the legislative must be allowed full play, subject only to the test of reasonableness; and it is not contended that the means provided in section 6 of Commonwealth Act No. 567 bear no relation to the objective pursued or are oppressive in character. If objective an methods are alike constitutionally valid, no reason is seen why the state may not levy taxes to raise funds for their prosecution and attainment. Taxation may be made the implement. Taxation may be made the implement of the state's police power.

Taxing power may not be delegated

MERALCO v PROV OF LAGUNAGR No. 131359 (1999)local franchise tax ordinance

FACTS: Certain municipalities of the province of Laguna issued resolution through their

respective municipal councils granting franchise in favor of petitioner Manila Electric Company (MERALCO) for the supply of electric light, heat and power within the concerned areas.

Pursuant to the provisions of RA 7160 (Local Government Code of 1991, enjoining local government units to create their own sources of revenue and to levy taxes, fees and charges), franchise tax ordinance was enacted.

MERALCO paid for the corresponding tax payment under protest. A formal claim for refund was thereafter sent by MERALCO to the Provincial

Treasurer of Laguna claiming that the franchise tax it had paid and continued to pay to the National Government pursuant to PD 551 already included the franchise tax imposed by the Provincial Tax Ordinance.

The claim for refund thus MERALCO filed with the RTC a complaint for refund. RTC dismissed the complaint, hence, the instant petition.

ISSUE:Whether the local government have the inherent power to tax

HELD:No. (qualified)

Local governments do not have the inherent power to tax except to the extent that such power might be delegated to them either by the basic law or by statute. Presently, under Article X of the 1987 Constitution, a general delegation of that power has been given in favor of local government units. The fundamental law did not intend the delegation to be absolute and unconditional; the constitutional objective obviously is to ensure that, while the local government units are being strengthened and made more autonomous, the legislature must still see to it that:(a) the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions;(b) each local government unit will have its fair share of available resources(c) the resources of the national government will not be unduly disturbed; and(d) local taxation will be fair, uniform, and just.

Exemptions on GOCC

PHILIPPINE PORTS AUTHORITY v CITY OF ILOILOGR No. 109791 (2003)question on liability for real property taxes and for business taxes with respect to a GOCC’s lease of real property

FACTS: Petitioner PPA initially argued that as a government-owned corporation, it is exempt

from paying real property taxes by virtue of its specific exemption in its charter. Subsequently, in the memorandum filed with the RTC, PPA omitted its earlier

argument and changed its theory by alleging that it is a government instrumentality, which, according to applicable jurisprudence, may not be taxed by the local government.

After obtaining an adverse decision from the trial court, it adopts yet another stance on appeal before the SC, contesting the taxability of its warehouse.

PPA argued for the first time that since "ports constructed by the State" are considered under the Civil Code as properties of public dominion, its warehouse, which it insists to be part of its port, should be treated likewise.

ISSUE:Whether PPA, a GOCC, is liable for real property and business taxes

HELD:Yes.

The instant case cited laws which indicate that PPA's tax exemption from real property taxes was withdrawn by PD 1931, but was subsequently restored by virtue of EO 93. Hence, PPA is liable for real property taxes on its warehouse. Moreover, the decision in the Basco case did not absolutely prohibit local governments from taxing government instrumentalities (see Mactan Cebu International Airport Authority v. Marcos).

The fact that tax exemptions of GOCCs have been expressly withdrawn by the present Local Government Code clearly attests against petitioner's claim of absolute exemption of government instrumentalities from local taxation.

The primary reason for the withdrawal of tax exemption privileges granted to government-owned and controlled corporations and all other units of government was that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, hence resulting in the need for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them.

Due process clause

COMMISSIONER OF CUSTOMS v CTAGR No. 70648 (1987)re-appraisal of shipments

FACTS: Respondent Campos Rueda Corporation sought for refund of the Customs duties it

had overpaid on three of its importations. The Bureau of Customs re-appraised its three shipments and respondent company

paid the increased duties and taxes under protest. Such protests were denied both by the Collector and Commissioner of Customs on the

ground that the re-appraisal made was based on “Alert Notices” received from the Finance Attaches abroad, which, however, were not disclosed, neither to Respondent Company nor to respondent Court.

ISSUE:Whether the re-appraisal made by the Commissioner of Customs is valid

HELD:No.

While it is true that appraisers of the Bureau of Customs are given ample leeway in determining the correct customs duties under Section 1405 of the Tariff and Customs Code, Section 201 of the same Code, which prescribes the criteria for the determination of the dutiable values of imported articles, has not been complied with. What is more, administrative proceedings are not exempt from the operation of due process requirements one of which is that a finding by an administrative tribunal should be supported by substantial evidence presented at the hearing or at least contained in the records or disclosed to the parties affected.

In this case the "Alert Notices" on which petitioner based its re-appraisal were not disclosed during the proceedings before the Bureau of Customs nor presented in evidence before respondent Court. The re-appraisal made by petitioner, therefore, can be faulted with arbitrariness in disregard of the standard of due process to which all governmental action should conform to impress upon it the stamp of validity.

Equal protection clause

ORMOC SUGAR CO v TREASURER OF ORMOC CITYGR No. L-23794 (1968)reasoanable classification / requisites / tax ordinance should not be singular and exclusive

FACTS: The Municipal Board of Ormoc City passed Ordinance No. 4, Series of 1964,

imposing "on any and all productions of centrifugal sugar milled at the Ormoc Sugar Company, Inc., in Ormoc City a municipal tax equivalent to one per centum (1%) per export sale to the United States of America and other foreign countries.

Payments for said tax were made, under protest, by Ormoc Sugar Company, Inc. Petitioner filed before the CFI of Leyte a complaint against the City of Ormoc as well

as its Treasurer, Municipal Board and Mayor, alleging that the afore-stated ordinance is unconstitutional for being violative of the equal protection clause and the rule of uniformity of taxation. The same is also an export tax forbidden under Section 2287 of the Revised Administrative Code since the tax is on both the sale and export of sugar.

CFI upheld the constitutionality of the ordinance, hence, the instant case.

ISSUE:Whether constitutional limits such as equal protection clause and rule of uniformity of taxation, were infringed

HELD:Yes.

The equal protection clause applies only to persons or things identically situated and does not bar a reasonable classification of the subject of legislation, and a classification is reasonable where:(1) it is based on substantial distinctions which make real differences;(2) these are germane to the purpose of the law;(3) the classification applies not only to present conditions but also to future conditions which are substantially identical to those of the present; and(4) the classification applies only to those who belong to the same class.

The questioned ordinance does not meet them, for it taxes only centrifugal sugar produced and exported by the Ormoc Sugar Company, Inc. and none other. At the time of the taxing ordinance's enactment, Ormoc Sugar Company, Inc., it is true, was the only sugar central in the city of Ormoc. Still, the classification, to be reasonable, should be in terms applicable to future conditions as well. The taxing ordinance should not be singular and exclusive as to exclude any subsequently established sugar central, of the same class as plaintiff, from the coverage of the tax. As it is now, even if later a similar company is set up, it cannot be subject to the tax because the ordinance expressly points only to Ormoc Sugar Company, Inc. as the entity to be levied upon.

Equal protection clause

TIU v CAGR No. 127410 (1999)reasoanable classification / requisites / tax ordinance should not be singular and exclusive

FACTS: Petitioners challenged the constitutionality of EO 97-A for allegedly being violative

of their right to equal protection of the laws. EO 97-A which provides that grant and enjoyment of the tax and duty incentives

authorized under Republic Act No. 7227 were limited to the business enterprises and residents within the fenced-in area of the Subic Special Economic Zone.

Petitioners contended that the provisions of EO 97-A confining the application of R.A. 7227 within the secured area and excluding the residents of the zone outside of the secured area is discriminatory.

ISSUE:Whether EO 97-A violates the equal protection clause of the Constitution

HELD:No.

SC ruled in favor of the constitutionality and validity of the assailed EO 97-A. Said EO is not violative of the equal protection clause; neither is it discriminatory. The classification applies equally to all the resident individuals and businesses within the "secured area." They are all similarly treated, both in privileges granted and in obligations required. All told, SC holds that no undue favor or privilege was extended.

The constitutional right to equal protection of the law is not violated by an executive order, issued pursuant to law, granting tax and duty incentives only to businesses and residents within the "secured area" of the Subic Special Economic Zone and denying them to those who live within the Zone but outside such "fenced-in" territory. The Constitution does not require absolute equality among residents. It is enough that all persons under like circumstances or conditions are given the same privileges and required to follow the same obligations. In short, a classification based on valid and reasonable standards does not violate the equal protection clause.

Equal protection clause

TIU v CAGR No. 127410 (1999)reasoanable classification / requisites / tax ordinance should not be singular and exclusive / abandoned naval facility to self-sustaining industrial and commercial zone

FACTS: Petitioners challenged the constitutionality of EO 97-A for allegedly being violative

of their right to equal protection of the laws. EO 97-A which provides that grant and enjoyment of the tax and duty incentives

authorized under Republic Act No. 7227 were limited to the business enterprises and residents within the fenced-in area of the Subic Special Economic Zone.

Petitioners contended that the provisions of EO 97-A confining the application of R.A. 7227 within the secured area and excluding the residents of the zone outside of the secured area is discriminatory.

ISSUE:Whether EO 97-A violates the equal protection clause of the Constitution

HELD:No.

SC ruled in favor of the constitutionality and validity of the assailed EO 97-A. Said EO is not violative of the equal protection clause; neither is it discriminatory. The classification applies equally to all the resident individuals and businesses within the "secured area." They are all similarly treated, both in privileges granted and in obligations required. All told, SC holds that no undue favor or privilege was extended.

The constitutional right to equal protection of the law is not violated by an executive order, issued pursuant to law, granting tax and duty incentives only to businesses and residents within the "secured area" of the Subic Special Economic Zone and denying them to those who live within the Zone but outside such "fenced-in" territory. The Constitution does not require absolute equality among residents. It is enough that all persons under like circumstances or conditions are given the same privileges and required to follow the same obligations. In short, a classification based on valid and reasonable standards does not violate the equal protection clause.

Taxation rule shall be uniform and equitable

SISON v ANCHETAGR No. L-59431 (1984)question of inequality between income earners engaged in business or practice of profession and purely compensation

FACTS: BP Blg 135 provides for the imposition of higher tax rate on taxable net income

derived from business or profession than on compensation. Petitioner contends that he would be unduly discriminated against by the imposition

of such higher rates of tax upon his income arising from the exercise of his profession vis-à-vis those who have fixed income or salaried individuals.

ISSUE:Whether the classification made resulted to inequality or transgression of the equal protection clause

HELD:No.

Classification, if rational in character, is allowable. In the case of Lutz v. Araneta, it was held that "at any rate, it is inherent in the power to tax that a state be free to select the subjects of taxation, and it has been repeatedly held that 'inequalities which result from a singling out of one particular class for taxation, or exemption infringe no constitutional limitation”.

According to the Constitution: "The rule of taxation shall be uniform and equitable." The problem of classification did not present itself in that case. It did not arise until nine years later, when SC held: "Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. There is quite a similarity then to the standard of equal protection for all that is required is that the tax "applies equally to all persons, firms and corporations placed in similar situation."

Taxpayers who are recipients of compensation income are set apart as a class. As there is practically no overhead expense, these taxpayers are not entitled to make deductions for income tax purposes because they are in the same situation more or less. On the other hand, in the case of professionals in the practice of their calling and businessmen, there is no uniformity in the costs or expenses necessary to produce their income. It would not be just then to disregard the disparities by giving all of them zero deduction and indiscriminately impose on all alike the same tax rates on the basis of gross income.

Non-impairment of contracts

MISAMIS ORIENTAL v CEPALCOGR No. L-45355 (1990)franchise tax “in lieu of all taxes” / special laws vs. general laws / contract of franchise

FACTS: CEPALCO was granted a franchise under RA 3247, as amended by RA 3570 and RA

6020, which provides that a franchise tax of 3% from gross earnings shall be imposed in lieu of all taxes and assessments of whatever authority upon privileges, earnings, income, franchise, and poles, wires, transformers, and insulators of the grantee.

PD 231 (Local Tax Code) was later promulgated which provides that: “Any provision of special laws to the contrary notwithstanding, the province may impose a tax on businesses enjoying franchise, based on the gross receipts realized within its territorial jurisdiction, at the rate of not exceeding one-half of one per cent of the gross annual receipts for the preceding calendar year.”

Pursuant said PD, the Province of Misamis Oriental enacted an ordinance imposing provincial franchise tax and demanded payment from CEPALCO.

CEPALCO paid under protest alleging that it is exempt from all taxes except the franchise tax required by RA 6020.

In the course of the appeal, CFI then ordered petitioner to return to CEPALCO the amount paid under protest; hence, the instant case.

ISSUE:Whether RA 6020 prevails over PD 231, thus exempting CEPALCO from provincial franchise tax

HELD:Yes.

Since special laws (RA 6020) are exemptions to general laws (PD 231), SC pointed out that the RA 6020 provision "shall be in lieu of all taxes of every name and nature" in the franchise is part of the inducement for the acceptance of the franchise and the rendition of public service by the grantee. As a charter is in the nature of a private contract, the imposition of another franchise tax on the corporation by the local authority would constitute an impairment of the contract between the government and the corporation.